AMCV Bankrupt

American Classic Voyages (AMCV) became the second cruise line to declare bankruptcy in the past two months, filing a Chapter 11 petition on Oct. 19. AMCV immediately ceased operations of all brands except for the Delta Queen Steamboat Company and intends to keep the Delta Queen in service, with hopes of bringing the Mississippi Queen back in spring 2002. According to an AMCV spokesperson, 450 shoreside staff and 1,700 shipboard staff were let go, while Cruise Industry News (CIN) estimates that North American capacity will decrease by 157,328 passengers annually as a result of the bankruptcy.

AMCV said on Oct. 19 that "it intends to work with Northrop Grumman and the U.S. Maritime Administration (MARAD) with the goal to maintain construction on the two 1,900-passenger Project America ships" for delivery in 2004 and 2005 - but the outlook appeared problematic at press time.

On Oct. 25, Northrop Grumman announced it had suspended all work on Project America and that up to 1,600 full-time employees would be either laid off or transferred to another project, with another 500 subcontractor employees also affected. According to Phil Dur, corporate vice president of Northrop Grumman's Ship Systems sector, "To date MARAD has decided not to continue the guaranteed funding necessary for the construction of the ship." As part of a recent agreement signed by AMCV and Northrop Grumman, bonds were set to be floated to help cover additional costs of construction, but MARAD refused to guarantee the bonds after AMCV filed for bankruptcy protection. If the ships are never constructed, CIN's post-2004 capacity estimates for the North American market will be decreased by 197,600 passengers annually.

The builder said that at the time of the work suspension, the first ship was 40 percent complete and 55 percent erected, with 91 percent of production material committed.

The bankruptcy of AMCV has serious consequences for MARAD and its Title XI program that extend far beyond Project America. According to MARAD, the agency has guaranteed a total of $185 million so far for Project America, but also has guarantees totaling $182 million related to earlier construction and refurbishment projects on five other AMCV ships: the American Queen ($47 million), Columbia Queen ($35 million), Cape May Light ($38 million), Cape Cod Light ($38 million), and Independence ($24 million) - bringing MARAD's total AMCV-related exposure up to $367 million. In addition, AMCV owes $79.4 million on the Patriot to Carnival Corporation.

According to AMCV Senior Vice President and General Counsel Jordan Allen, the company has the following intentions under the reorganization plan: The Independence will be transferred as soon as possible to MARAD; the Patriot will be returned to Carnival; the two unencumbered steamboats - the Delta and Mississippi Queens - will be used to operate a scaled­ back river operation; and AMCV will seek to restructure debt with MARAD related to the American Queen, Columbia Queen, and the two coastal vessels.

Among the obstacles to this plan: builder Atlantic Marine is asserting that it has the title to the Cape Cod Light, as AMCV has only made $32 million of the $38 million in payments (according to Allen, the remaining $6 million is in a MARAD escrow account). Also, said Allen, "There is a question of whether MARAD can restructure that debt (related to the steamboat/coastal fleet) given today's marketplace."

Meanwhile, other U.S.-flag startups, including both Voyager Holdings and SeaAmerica Cruise Lines, have publicly expressed interest in taking over Project America for themselves.

If AMCV does continue to operate in some restructured form, it must also address a lack of confidence from both consumers and the travel trade. Because AMCV is a U.S.-flag operator, it was not required to post a bond with the Federal Maritime Commission (FMC) to protect customer deposits; instead, it was allowed to "self­ insure." Commented Allen, "At this point, it is too early to tell whether we will be able to make any refunds to passengers."

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